Expansionary Monetary Policy: Explain how these actions would affect the money supply, interest rates, spending, aggregate demand, GDP, and employment.
Explain the actions of the Fed in regard to the three tools.
- When the required reserve ratio is increased or decreased
- When the discount rate is increased or decreased
- Buying or selling government securities when conducting expansionary monetary policy
Hint: The three tools the Federal Reserve Bank (The Fed) uses when conducting monetary policy are the required reserve ratio, the discount rate, and open market operations.
Expansionary Fiscal Policy: Explain the actions the federal government would take while engaging in expansionary fiscal policy in terms of the following:
- The necessary change in taxes and government spending,
- The effect on aggregate demand, GDP, and employment.
